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Federal Reserve's John Williams Say Strong Could Make Case for Rate Hike

Nov 22 2015

"When we had a normalization in 2004 to 2006 we moved at the same 25 basis points per meeting for 17 meetings in a row", Bullard said.

The dollar weakened across the board on Thursday after rising for four straight sessions, as investors cashed in recent gains driven by widespread expectations of a US Federal Reserve interest rate increase next month.

Most economists in a Bloomberg survey, and traders of federal funds futures, expect lift-off from near-zero, where the bank's key lending rate has been since 2008, at that meeting.

Bullard, a prominent Fed hawk who is ready to raise rates, said USA real consumption growth in the fourth quarter looked to be "fairly strong" and added that he expected the economy to expand for many more years to come, absent unexpected shocks.

The Federal Open Market Committee took into consideration low oil prices and the strength of the USA dollar as well as the European Central Bank's relatively new policy of quantitative easing that broke away from their traditional methods. Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ, said comments from Fed officials that raising rates early could limit future rises weighed on the U.S. currency.

"The economy is going to go into a boom period", Bullard said, citing the low U.S. unemployment rate, which is now 5 percent.

Williams also said data have been consistent with "core measures of inflation having stabilized and maybe even starting to firm up some".

About seven years ago as the country slid into a recession, the Fed set its benchmark interest rates close to zero to try and strengthen the economy.

Williams continued: "I do think the slope is the most important thing to communicate, the pace of increases". That was a very mechanical approach to increasing rates. "Since the economic data can surprise on the upside and the downside, maybe there will be a few opportunities for us to show that we're data- dependent by moving a little slower or a little bit more quickly depending on...how the data over the next couple years develop".

This will be the case provided United States economic data remains encouraging, the Fed official predicted. The stocks of banks saw correlated movement as anticipations regarding the interest rate hike changes from time to time. The natural interest rate is the rate at which an economy can maintain full employment and stable inflation; central banks traditionally lower rates to stimulate their economies, but have less room to do so when the natural rate is low. "I would welcome the return of that".

The minutes of the Fed's last policy meeting, released Wednesday, revealed a related discussion among policy makers in late October.